U.S. tariffs could push Puma to shift China production

BERLIN (Reuters) - German sportswear maker Puma (PUMG.DE) is working on contingency plans to move some production from China to other Asian markets if U.S. tariffs are imposed on footwear, its chief executive said on Tuesday.

A woman walks past a Puma store at a commercial center in Santiago, Chile May 19, 2017. REUTERS/Ivan Alvarado

Puma reported that strong demand in China helped power a jump in first-quarter sales and earnings, but cautioned that the threat of a U.S.-China trade war was tempering its optimism for the rest of the year.

Puma currently makes about a third of its products in China and is looking into moving sourcing of footwear to countries like Vietnam and Indonesia, and apparel to Cambodia and Bangladesh, said CEO Bjorn Gulden.

“Our sourcing people have been working on alternatives for the last two or three months,” Gulden told a conference call for journalists. “It causes headaches for many people.”

Related Coverage

Puma shares, which have risen 23 percent in the last three months on its bullish outlook, were down 0.6 percent at 0945 GMT.

Apparel and footwear could be included in a new U.S. list of $100 billion worth of Chinese imports expected to be announced in coming days as the trade fight started by U.S. President Donald Trump with China escalates.

FILE PHOTO - A jacket zipper with the logo of German sports goods firm Puma is pictured in a shop after the company's annual news conference in Herzogenaurach February 20, 2014. REUTERS/Michaela Rehle

Gulden said Puma might have an advantage over larger rivals Adidas (ADSGn.DE) and market leader Nike (NKE.N) in being able to move sourcing faster because it its volumes are smaller.

However, he added that U.S. tariffs could also mean Puma has to accept a lower U.S. margin or raise prices, adding: “We are not the market leader in the U.S. so of course we will see what the market does.”

Gulden said moving production for the U.S. market could take about 12 months, adding that capacity freed up could also be used to make products for the booming Chinese market, where Puma’s sales growth was exceptional in the first quarter.

“We are not even touching the second and third tier cities in China,” Gulden said, noting Puma had about 1,400 points of sale in China, compared to about 10,000 for its rivals.

Gulden noted that Puma had already been shifting production away from China over the last couple of years due to rising labor costs, with many of the factories across Asia owned by the same companies, making it easier to switch volumes.

Gulden dismissed the idea that tariffs could shift footwear production back to the United States, although medium to long-term it made sense to move sourcing closer to its major markets.

Ahead of the soccer World Cup in June, Gulden said Puma had a good order book for the second and third quarters. It has compensated for the failure of top sponsored team Italy to qualify by signing finalists Senegal and Serbia.